The shares gained the most in almost 16 months after
Wolfsburg, Germany-based VW said earnings before interest and
taxes rose 20 percent to 2.78 billion euros ($3.82 billion),
exceeding the 2.72 billion-euro average estimate of 10 analysts.

The maker of the 911 sports car, the most profitable of
VW’s 12 brands with an 18 percent return on sales, is critical
to efforts by Europe’s largest car manufacturer to sustain
earnings momentum. Profit from Porsche, which VW consolidated in
August 2012, climbed 55 percent to 599 million euros, accounting
for 22 percent of the entire group’s earnings.

“Porsche has been showing a great performance since the
integration into VW,” said Stefan Bratzel, director of the
Center of Automotive Management at the University of Applied
Sciences in Bergisch Gladbach, Germany. “They’re bound to
continue on this course as they expand the brand’s product
lineup and enter new markets.”

VW jumped 5 percent to 183.50 euros at the close in
Frankfurt, the biggest gain since July 5, 2012. The stock has
climbed 6.6 percent this year, valuing the German carmaker at
83.5 billion euros.

Porsche Profit

Porsche, the world’s most profitable auto brand, is
targeting operating profit growth in 2014 as the Macan compact
sport-utility vehicle joins the product lineup, Chief Financial
Officer Lutz Meschke told Bloomberg this month. Porsche plans to
sell more than 200,000 vehicles annually in 2015 or 2016, about
three years earlier than planned, on demand for the Macan and
the larger Cayenne SUV.

Backed by a premium-car lineup that also includes Audi,
Lamborghini and Bentley, Chief Financial Officer Hans Dieter
Poetsch reaffirmed today during a conference call with analysts
that group operating profit will reach last year’s 11.5 billion
euros in 2013 and rise again next year.

“There’s nothing more to speculate about” the forecast VW
gave earlier this year, Poetsch said. “That’s what we’ll
deliver.”

Audi Target

New vehicles will be at least as profitable as their
predecessor models, helped by VW’s modular technology, and
there’s “no reason to believe” Audi’s operating profit margin
will fall below the brand’s target corridor of 8 percent to 10
percent of revenue, he said.

VW, which targets taking the global sales lead from Toyota
Motor Corp. and General Motors Co. by 2018, is working to
streamline costs with more sharing of technology among its eight
car brands, three commercial-vehicle divisions and the Ducati
motorcycle unit. Third-quarter revenue fell 3.8 percent to 47
billion euros on negative currency effects and price pressure in
Europe, where auto demand is at a 20-year low.

“We are focusing on disciplined cost and investment
management, as well as on further improving all our processes,”
Poetsch said earlier in a statement. “This is particularly
important, given the fact that the economic environment is not
expected to improve in the short term.”

Cash Flow

Net cash flow swung in the third quarter to a positive 3.22
billion euros from a negative 1.4 billion euros last year. Net
liquidity jumped 81 percent in the first nine months to 16.6
billion euros. Volkswagen delivered 40,000 more cars than it
produced in the quarter, cutting vehicle inventory and reducing
spending on parts.

“Cash flow was significantly better than I expected,”
Daniel Schwarz, a Frankfurt-based analyst at Commerzbank AG who
recommends buying the shares, said in a telephone interview.

The German automaker is rolling out 60 new and updated
models this year, including fresh versions of the VW Golf
hatchback, and is widening its dealership network in markets
such as China, Russia and southeast Asia. Nine-month deliveries
in China rose 18 percent, propelling a 4.8 percent global gain.

Premium Rivalry

Mercedes ranks third in worldwide premium-vehicle sales,
with Munich-based Bayerische Motoren Werke AG leading the
segment and Audi placing second. The three companies are all
targeting record deliveries this year, with Audi and Mercedes
seeking to beat BMW as the biggest seller in the segment by the
end of the decade. Global delivery growth at Mercedes in
September exceeded gains at Audi and BMW.

Porsche’s higher contribution to VW profit helped prop up
the group as other passenger car brands posted earnings that
were flat or declined.

The VW nameplate’s profit in the quarter edged up slightly
to 623 million euros from 621 million euros a year earlier. The
Spanish Seat brand, the automaker’s only unprofitable unit,
posted a third-quarter loss of 53 million euros, unchanged from
a year ago. VW’s Czech marque Skoda reported 128 million euros
of operating profit, an increase of 8.5 percent.

“There are many weak spots,” said Juergen Pieper, a
Frankfurt-based analyst at Bankhaus Metzler who recommends
selling the shares. “Audi’s product momentum is fading, the VW
passenger car unit is struggling and the situation at the loss-making Seat brand remains unresolved.”